How significant are mandatory carbon and sustainability reporting requirements under the Renewable Transport Fuels Obligation (RTFO) in driving transport fuel suppliers to source more sustainable biofuels?
[Dissertation (University of Nottingham only)]
As concern about climate change, resource scarcity and energy security grows among policy-makers and the transport fuel sector, biofuels have been held up as a means of diversifying fuel supplies and reducing carbon emissions. Biofuels are a renewable resource using agricultural feedstocks that absorb carbon dioxide as they grow, making them carbon neutral when combusted.
Interest in biofuels led to the introduction of the EU Biofuels Directive, which requires member states to set targets for the inclusion of an escalating proportion of renewable fuels in transport fuels sold between 2008 and 2010/11; rising to 5% by 2010/11. The Renewable Transport Fuels Obligation (RTFO), administered by the Renewable Fuels Agency (RFA), is the UK’s implementation of the Directive.
However, misgivings about the sustainability of biofuels remain, highlighted by NGOs like Friends of the Earth and in an RFA report. These are based on both the direct and indirect impacts of biofuels and their supply chain. As a result, the UK Government introduced carbon and sustainability standards with escalating targets that obligated fuel suppliers were called upon to meet. Three targets were set out, covering data collection, greenhouse gas (GHG) savings and a qualifying standard for environmental sustainability. From April 2008 obligated suppliers were mandated to report against the targets. However, meeting the targets is initially voluntary; they are due to be mandated in 2011. Data on all three targets published in regular RFA reports draws attention to poor performers.
This study analyses the significance of the Renewable Transport Fuel Obligation carbon and sustainability reporting mechanism in driving improved carbon and sustainability performance amongst obligated transport fuel suppliers. The study conclusions are summarised below:
• The study suggests that the reporting mechanism has had an effect, but that it has not influenced the behaviour of suppliers on its own. Though reporting appears to generate pressure from within the industry by facilitating comparisons between companies, the lack of stakeholder interest, particularly from consumers, blunts the power of the reporting mechanism to leverage influence over suppliers. Whilst there is evidence to suggest that it does have an impact in creating internal pressure for improved performance, other factors are more dominant motivations for the apparent improvement in standards, including the threat posed by the future mandating of carbon and sustainability standards at UK and EU level.
• Sustainable biofuels represent a commercial imperative for transport fuel suppliers because they provide one means for them to meet the energy challenge whilst reinforcing their core hydrocarbon business. As such, there is strong enthusiasm in the sector for the potential of biofuels, best demonstrated by the research and development investment in second generation biofuels. This is a driver of improved performance independent of the reporting mechanism.
• Considerable barriers to meeting the target were highlighted by stakeholders. These include the lack of certification schemes that meet RFA standards and the relative lack of power of both the UK biofuels industry and the UK regulator to influence behaviour in a diverse, global supply chain. The relatively short transition time before the mandating of carbon and sustainability standards and regulatory uncertainty were also found to be barriers.
• The study highlighted the difficulties faced by a UK regulator in trying to influence behaviour in a global industry and a global supply chain. As multi-national companies, the oil majors in particular face pressures to take advantages of economies of scale to supply the same products in multiple markets. This means that it is the EU-wide standards that are likely to have the power to impact on behaviour down the biofuels supply chain. The anticipation of their introduction is already a major driver of change.
• The behaviour change that has been identified as being related to RTFO carbon and sustainability targets has been around the data processes of feedstock producers and traders, not the agricultural practices they use. However, this is a very important contribution. The UK reporting mechanism provides a model for other EU regulators and is helping to create the infrastructure through which continued improvements to biofuel carbon and sustainability standards for the whole EU market can be monitored and incentivised.
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